Latest Victim of the Housing Market: McMansions

In 2005, Ahmad Hamadanian and his wife, Mitra, bought a new 5,600-square-foot home in Stone Canyon Preserve, a luxury development in Claremont, Calif. They paid more than $1 million for the stucco mansion with five bedrooms and 5½ baths. In a few years, they figured, they could sell the house and make a bundle of cash in the rising real estate market.

"We thought it would be all right," Ahmad said.

Derisively nicknamed "McMansions," these mass-produced luxury homes fueled the real estate boom. With 4,000 to 6,000 square feet of living space and price tags of at least $1 million, buyers were all but guaranteed their homes would appreciate by hundreds of thousands of dollars as soon as they signed on the dotted line.

Today, after sinking hundreds of thousands of additional dollars into landscaping, granite counters and high-end appliances, the Hamadanians have listed the house for $1,995,000. It's been on the market for six months, and they have yet to receive an offer.

Hamadanian owns an Italian restaurant and his wife is a doctor, but with their house nearly 100 percent financed and monthly loan payments of $6,500, they're worried.

"After five years, our mortgage is going to jump high, like maybe twice as much," Mitra Hamadanian said.

Losing an Investment

People once had to place their names on a waiting list to buy a luxury home, but now owners trying to sell compete with new homes offered at lower prices, bank-owned properties and so-called "short sales," in which a home sells for less than the value of the mortgage.

Compounding the problem, buyers have disappeared because the subprime and 100 percent loans that made so much growth possible are gone.

"The people who qualified for the kinds of loans that bought these houses no longer qualify," said Char Constantino, a broker with Century 21.

Not only do those people no longer qualify, but many who did take risky financing are losing their homes. Foreclosures in Los Angeles were up 381 percent in the last quarter of 2007 from the same period the previous year.

This percentage does not even reflect the number of instances in which lenders have agreed to a short sale.

Abraham Prattella is a broker who represents 15 short sales, one of them in Stone Canyon Preserve. It was a home originally bought for $1.35 million and appraised just this past December for $1.4 million. The property is not landscaped, and the lawn is dirt. Prattella has it listed at $999,000.

"What happens is, we sell this house for about a million dollars now, and when the guy next door is selling his house for 1.5, it won't compare at that price," said Prattella. "The home value has to be lowered."

Weathering the Storm

Just up the street, Rudy Diaz is offering his 5,300-square-foot house for $1.888 million. It's landscaped and loaded with granite counters; the kitchen is beautiful.

"I originally bought the house based on the fact that I don't have a retirement [fund]," Diaz said.

In other words, he bought the house not only as a place to live but as an investment. Now with one daughter out of the house and another on her way out soon, he wants to sell. But in three months he hasn't received even a lowball offer on paper.

According to Prattella, it's the fallout from the loan crisis that's preventing families like the Diazes from selling.

"There's so many homes now, and everybody is low-balling every offer, because they know that the consumer has the actual power," Prattella said. "Anybody who wants to actually sell their house, they're dropping the prices drastically."

Constantino says her clients have to make some hard choices. "They have to sell at today's market, at a price that they are not willing to sell it for. Or they have to ride the storm," she said.

The storm, Constantino says, could last two or three more years -- after which, just possibly, a home may not be so much an investment as a place to live.